Shares in Countrywide PLC (LON:CWD) eased on Wednesday after the estate agent was downgraded by Swiss banking giant UBS.
Countrywide has recently launched a low-cost service among a few of its brands to try and compete with the likes of Purplebricks Group PLC (LON:PURP) which has undercut the market with its cheap selling fees.
UBS says the decision to lower its fees will inevitably lead to “further commission erosion” and questions whether Countrywide is positioned well enough to compete with a company with significantly lower overheads.
“While the digital roll-out is clearly the focus of the growth strategy for Countrywide, we remain unclear as to the ability of this proposition to generate organic growth given the fixed fee of £995 versus average retail fee of £2,520.”
UBS analyst Heidi Richardson also has concerns over “structural headwinds” within the business, while she reckons the balance sheet remains “at risk” despite a recent £38mln placing.
“While Countrywide is now focused on driving organic growth and maintaining profits in 2017, the data continues to show structural weakness in the underlying business, with commission rates and market share falling,” the analyst said.
UBS has cut its 2017 earnings per share forecast by 9% to 17.1p and reduced its profit before tax guidance to£39.7mln, which would represent a 25% year-on-year fall.
Shares in Countrywide were down 4% to 157p.